Energous Corporation — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The company is developing WattUp RF-based wireless charging technology and expects to commercialize through component sales and technology licensing. Its reported revenue primarily reflects customer development projects and milestones, not established product sales.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.00 million | $2.08 million | $1.32 million | $2.50 million |
| Operating expenses | $11.13 million | $7.68 million | $32.54 million | $21.19 million |
| Operating loss | $10.13 million | $5.61 million | $31.22 million | $18.69 million |
| Net loss | $10.13 million | $5.61 million | $31.21 million | $18.68 million |
| Loss per share, basic and diluted | $0.57 | $0.43 | $1.83 | $1.45 |
- Research and development was $7.94 million for Q3 and $23.08 million for the nine-month period, up 67% and 77%, respectively, year over year. Management attributed increases chiefly to engineering staffing, chip development, patent costs, software and consulting.
- Cash and cash equivalents were $24.96 million at September 30, 2016, down from $29.87 million at December 31, 2015. Total assets were $29.03 million; current liabilities were $5.18 million. The balance sheet reports no debt. Gross margin is not clearly presented in the filing.
- Nine-month operating cash use was $24.44 million, versus $15.46 million in 2015; investing cash use was $0.86 million. Financing provided $20.38 million, principally from the August private placement. Cash declined $4.92 million over the nine months.
- The August 2016 private placement raised approximately $19.89 million net. Energous issued 1,618,123 shares and a warrant for up to the same number of shares at $23 per share.
Changes versus prior comparable periods
- Revenue fell approximately 52% in Q3 and 47% for the first nine months. Management cited the timing and achievement of development milestones; Q3 2016 included $875,000 of milestone revenue from a consumer-electronics customer.
- Net loss increased approximately 81% in Q3 and 67% for the nine-month period. Higher R&D and general and administrative costs more than offset reduced sales and marketing expense.
- Nine-month operating cash use increased by about $8.98 million year over year. Cash levels were supported by the 2016 private placement rather than operating cash generation.
Outlook, risks and notable items
- Management expected cash on hand and anticipated customer-project payments to fund operations into the fourth quarter of 2017. It cautioned that additional financing may be needed depending on commercial revenue timing and market conditions; no assurance of acceptable financing terms was given.
- The company said nearfield products with its technology might begin shipping in late 2016 or early 2017, subject to partner progress, regulatory approvals and commercialization. WattUp performance and commercial adoption remain uncertain.
- In a subsequent event dated November 7, 2016, Energous announced a strategic alliance with Dialog Semiconductor for manufacture, distribution and commercialization, including specified exclusivity terms. In a related transaction, Energous agreed to sell Dialog shares and a warrant for an aggregate $10 million. These events occurred after the reporting date.
- Ossia filed two patent-review petitions challenging one Energous patent; the company said it intended to defend the patent but acknowledged it could be invalidated. The filing also describes risks around technology development, regulatory approvals, partner relationships, market acceptance, intellectual property and continued financing.
- Stock-based compensation was $5.41 million for the first nine months of 2016, versus $4.31 million a year earlier. The company had 18,999,193 shares outstanding at September 30; the filing reports 19,130,892 as of November 3.
Important facts for investors to verify
- Whether the development milestones and partner relationships translate into recurring product, licensing or royalty revenue—and the degree of customer concentration.
- Actual cash burn and runway versus management’s fourth-quarter 2017 estimate, including the timing and terms of any subsequent financing.
- Progress toward product launches, FCC approvals and commercial adoption, including the implications of the Dialog alliance and its exclusivity and sales provisions.
- Outcome of the patent challenges and the strength and scope of the company’s intellectual-property protection.
- Potential dilution from outstanding options, restricted and performance units, and warrants, including the Dialog and August 2016 warrants.